What's in Store for Turtle Beach (HEAR) in Q4 Earnings?

Turtle Beach Corporation HEAR is scheduled to report fourth-quarter 2018 financial results after the closing bell on Mar 14. In the last reported quarter, the company delivered a positive earnings surprise of 18.2%.

It is likely to report higher revenues on the back of solid product performance, robust market position along with market share expansion, driven by innovation, quality products, strong brand and retail partnerships. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors at Play

During the fourth quarter, the audio technology company announced a new partnership with Redbox — America’s destination for renting new-release entertainment — offering free game rentals with purchase of any new Turtle Beach gaming headset. The company also unveiled new Turtle Beach Battle Buds — a high-performance in-ear headset designed for gamers on the go.

Moreover, Turtle Beach announced the availability of its Stealth 600 — North America’s best-selling wireless gaming headset of 2018 — for Xbox One and PS4 in white, which was originally planned as an early 2019 product, as a great gaming gift for the holidays. In addition, the company amended its revolving credit agreement with Bank of America and paid off the remaining balances on both its term loan and subordinated debt.

Turtle Beach continues benefiting from the positive industry dynamics, which has resulted market share growth. The company boasts a solid market position led by a strong portfolio of innovative products for all levels of gamers coupled with a healthy overall console gaming headset market. Furthermore, it aims toward long-term growth outside of console gaming headsets in PC gaming headsets in its core North America and European markets.

During the quarter, Turtle Beach continued to lead the nearly $1.5 billion core console headset market. It introduced a great array of products for the holiday season with focus on brand, distribution, merchandising and operational capabilities. The company also expanded its presence in the burgeoning eSports market.

Turtle Beach is working on growing its addressable market by about 50% by increasing its focus and portfolio on the PC gaming headset segment in core markets. Over time, the company intends to expand its addressable market by entering PC gaming headsets outside of its core markets. This includes new geographies like China, which is the biggest gaming market in the world and is virtually untapped by Turtle Beach.

Based on preliminary information, the company expects fourth-quarter revenues to be between $109 million and $111 million, an increase of at least 37% year over year, and above its prior guidance of around $94 million. It also anticipates to register significant leverage of operating costs as gross margin is likely to exceed 38% compared with 37.6% a year ago. Adjusted EBITDA is expected to be between $23 million and $25 million, up at least 33% from $17.2 million a year ago, and above prior guidance of about $21 million. Fourth-quarter adjusted EBITDA includes charges of about $1.5 million for early repayment of outstanding subordinated notes and term loans. EPS is expected to be between $1.27 and $1.34, well above the prior guidance of $1.02. For the quarter, the Zacks Consensus Estimate for total revenues stands at $110 million. The company generated revenues $80 million in the year-earlier quarter. Adjusted EPS is pegged at $1.31. The company reported earnings of $1.16 a year ago.

What Our Model Says

Our proven model does not conclusively show that Turtle Beach is likely to beat earnings this quarter as it does not possess one of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Turtle Beach’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at $1.31. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Turtle Beach currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Columbia Sportswear Company COLM has an Earnings ESP of +2.59% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

General Motors Company GM has an Earnings ESP of +29.83% and a Zacks Rank #2.

Union Pacific Corporation UNP has an Earnings ESP of +4.89% and a Zacks Rank #2.

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